Banks Threaten to Charge Depositors if Fed Turns Rates Negative

As the Federal Reserve considers ways to begin tapering asset purchases without signaling withdrawal from monetary stimulus, the Financial Times reports that banks are not happy with at least one option.

“Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors. Banks say they may have to charge because taking in deposits is not free.”

“About half of the reserves come from non-US banks that do not have to pay the deposit insurance fee. Their favourite manoeuvre is to take deposits from money market funds and park them overnight at the Fed, earning millions of dollars risk-free. Cutting the interest on reserves would stop that.”